RENDER - The International Magazine for Rendering

Renderers Caught in Financial Turmoil

By Tina Caparella

The U.S. economy has been in financial turmoil this year, with real estate prices falling, banks closing, and stock markets plummeting, all while the rendering industry has enjoyed increased prices for their products. But just weeks before the industry convened for its annual meeting in late October, renderers suffered a blow as commodity prices tumbled, giving them additional fuel for discussion at the National Renderers Association (NRA) 75th Annual Convention.

A record number of members gathered in Laguna Niguel, CA, to discuss how to not only deal with declining prices, but an impending Food and Drug Administration (FDA) feed rule. Four days of meetings and presentations provided renderers some fat to chew on as they celebrated a milestone for NRA.

For 75 years, the association has provided a unified voice for the industry to address various issues. A nostalgic slideshow of photos was the highlight of a luncheon honoring past conventions and the many changes the industry has weathered over the past 75 years. This was followed by a much anticipated “Talk with Chuck” discussion with financial guru Charles Schwab, founder and chairman, The Charles Schwab Corporation.

Schwab said the recent downslide of the stock market was the ninth “crack” in his financial career and one of the biggest, even larger than the downturn in 1973-1974.

“It has come on because of a great amount of credit and debt,” Schwab commented. “Principal institutions went wild with their lending.” Although the soft-spoken man was not overly optimistic about the country’s financial future, warning that banks are tightening up on lending, he reassured attendees that there are still great stocks to invest in. Schwab advised renderers to be invested in five different industries, answered many of their questions, and offered his insight into the country’s financial future: “We are resilient as a country. We’ll clean this stuff up and get back to the way it used to be.”

Randy Blach, Cattle-Fax, provided a more detailed financial picture, saying that food and beverage inflation was at 5.9 percent in August, the highest level since December 1990. Other cost inflation figures included crude oil up 156 percent since 2000, pasture land up 135 percent, and corn prices up 132 percent.

Blach painted a mixed picture for hide and offal values per head of cattle. Comparing October 2006 to October 2008, the value of tallow was up $5.61 per head and meat and bone meal was up $4.34 per head. On the flip side, comparing values from July 2008 to October, tallow plummeted $19.25 per head and meat and bone meal was down $4.46 per head. Blach said the plunge in rendered product prices is due to the decline in corn, soybean, and wheat prices.

“And it’s all tied to this global financial market we’re dealing with,” he stipulated. “Chaos is, I think, what we’d call it.” Every one dollar per bushel change in corn impacts meat and bone meal by $45 per ton. Corn prices have dropped 48 percent over its high in the past year, the largest percent decline in 20 years. Historically, yellow grease and crude prices had no correlation until April 2007 when the tax laws changed. Since then price fluctuations of the two commodities trend together – each $10 change in crude oil price affects yellow grease prices by two cents per pound.

Blach reported that U.S. cattle herds are getting smaller due to higher costs and narrow margins, with a $110 a ton per head loss suffered this year. Export markets are important to the livestock industry, with 70 percent of the increase in pork production exported and 26 percent of the increase in beef production exported. In all, 10 billion pounds of protein was exported more than was consumed in the United States.

“If we don’t have access to these export markets, we have a big problem,” Blach noted. “We have to be able to trade or we’re upside down in a hurry and we become a much smaller industry.” Although the cattle industry is smaller – there were 132 million head in 1972 compared to about 95 million today – 2008 will be the second biggest beef production year in history due to much larger animals. Blach predicted a 400,000 to 500,000 head drop in cow slaughter in 2009, but a slight increase in the number of dairy cows – a trend that will continue, especially in the western United States.

As for MCOOL, or mandatory country-of-origin labeling, Blach remarked that it is the worst legislation to come through the cattle industry in 25 years: “It just makes zero sense.”

Dr. Bernadette Dunham, Food and Drug Administration (FDA)/Center for Veterinary Medicine (CVM), informed attendees that rendering’s role needs to be embraced by the public because of its benefits to animal agriculture. She remarked that the discovery of melamine in pet food in 2007 opened everyone’s eyes as to the international market we’re in and the public’s love for their pets. Because of that incident and other trade issues, FDA opened an office in China at the end of November 2008.

Dunham spoke about the new enhanced feed rule due to go into effect April 2009, addressing concerns renderers have that the rule makes them liable for the actions of others. She said the guidance document specifies that all records must be accurate and truthful, and criminal action is possible against anyone providing false information, but that FDA doesn’t have the time or resources for overzealous enforcement. Dunham commended NRA for its dialogue with FDA and CVM.

“You do have a wonderful reputation,” she noted. “You are a role model we can work with.”

Changing subjects was Dr. Garth Boyd, Camco North America, who described carbon footprints and credits to renderers. He is skeptical of the “sky is falling” mentality of some scientists regarding climate change, but does believe there is some global warming and that humans are having an impact on greenhouse gas (GHG) emissions. Currently there is no U.S. federal regulation on GHG emissions, but because some states are beginning to implement their own, Boyd expects federal legislation is forthcoming in the next one to two years.

Boyd explained projects that would aid businesses in capturing and destroying methane, and admitted that determining carbon credits is an extremely complicated process. In order to obtain a carbon credit, a business has to do something in addition to or different than “business as usual,” i.e., using biofuels instead of diesel. Wal-Mart is aggressively requiring suppliers to determine their carbon footprint and reduce emissions. At a recent dairy sustainability summit, the dairy industry agreed to reduce its GHG emissions 50 percent from 2007 levels by 2020. Boyd pointed out that the beef industry has the greatest liability in GHG emissions, while broilers are the most efficient in their emissions.

Committees Convene
Besides economic issues, there was plenty of industry business to take care of, beginning with the Animal Protein Producers Industry (APPI) Committee where Dr. David Meeker, vice president, Scientific Services, NRA, reported that Code of Practice certifications are going smoothly and the program has served the industry well.

Steve Kopperud, Policy Directions, advised the Environmental Committee to expect little relief in the treatment of fats under the spill prevention, control, and countermeasure proposed rule issued in October 2007, where there is little differentiation from the handling of petroleum oils. At the moment, any action at EPA is on hold pending the new White House administration next January.

The Biofuels Committee meeting usually draws a large contingency of renderers and this year’s gathering was no exception. Committee Chairman Chuck Neece, Central Bi-Products, said the publication and implementation of a new ASTM International biodiesel specification that requires cold soak filterability testing is having quite an impact on biodiesel producers using animal fats as they are having problems meeting the test requirements. Another issue of concern for renderers is that as of October 1, 2008, Minnesota and surrounding states are only allowing the use of biodiesel with a cloud point of two degrees Celsius or lower until April 1, 2009.

“That is very difficult to meet if you use animal fats,” Neece commented.

Todd Moser, Rothsay, presented the recommendations of a biofuels task force on how best to change the negative perception that rendered fats often receive within the biodiesel industry, which has no technical or factual merit. He reported that animal fats and yellow grease now account for roughly 30 percent of biodiesel feedstocks, up from 10 percent one year ago. The task force will disseminate educational materials at the national biodiesel conference in February and at fuel marketer meetings.

The TSE (Transmissible Spongiform Encephalopathy) Committee discussed the impending FDA feed rule, including recommending a supplier certification form drafted by lawyers for Valley Proteins. Michael Koewler, Sacramento Rendering Company, said the California Department of Food and Agriculture has been proactively working with his company to develop inspection parameters to comply with the rule, and highly suggested contacting the dairy industry to educate them on the impact of the new rule. Jim Hodges, American Meat Institute, said the rule will only affect about 15 percent of total U.S. cattle slaughter, but that the burden will fall on cow slaughterers. Spinal cord removal is not a concern as it has been removed all along, but removal of the brains will be more challenging. Hodges said the big issue is lingering questions about what constitutes compliance.

While very few questions were answered, renderers took turns voicing their continued opposition to and concern over FDA’s new rule. Dr. Don Franco, past president, APPI, said there is no evidence that the infectious bovine spongiform encephalopathy (BSE) agent exists in the U.S. cattle population, that of the three cases detected in the country since December 2003, one was in an imported animal from Canada and the other two were atypical cases and not related to feed. Franco also pointed out the industry has a consistent 95 percent or better compliance rate with the feed rule put in place in 1997.

The Legislative Committee encouraged all renderers to attend next year’s NRA congressional fly-in June 15-17, 2009. With a new Congress in 2009, the next fly-in will be the most important one ever to inform new congressional leaders on the value of the rendering industry. Committee members then agreed to support funding for California Grain and Feed Association lobbying efforts in California on specific rendering issues within the state: FDA feed rule, grease theft, brown grease manifest regulations, and branding the industry as green and critical. Most committee members agreed that laws passed in California are often followed and implemented by other states or even federal government. The Pacific Coast Renderers Association is providing a large sum of the proposed funding for the lobbying efforts.

Members of the International Market Development Committee (IMDC) discussed raising dues to cover a budget deficit, but because of current economic conditions decided instead to make a plea to the industry for a 25 percent voluntary contribution above and beyond current dues. Bruce Ross, NRA European consultant, reported there has been a 46 percent drop in BSE cases worldwide over the past year. In 2007, 175 BSE cases were reported in the 25 European Union (EU) countries.

International Issues
“Wow, wow, wow!” was the response of IMDC Chairman Mike Gilbert, Griffin Industries, to rendered product markets over the past year at the opening of the convention’s International Market Forum. He explained that the market has been fast moving, challenging, and seen its ups and downs, especially with prices. Gilbert pointed out that it had been a seller’s market, but prices took a nose dive in September and October 2008, sometimes dropping three to five cents per pound in a day.

Niels Nielsen, European Fat Processors and Renderers Association, wasn’t quite so animated in his details on the European rendering industry, reporting that although the intraspecies feed ban was still in place in the EU, there has been some stirring on ways to start introducing animal proteins back into European animal feeds. Some items being worked on include a species test to detect ruminant protein that will require European Commission approval, and an internationally accepted and validated testing method for insoluble impurities in tallow. Other requirements that need to be put in place before the ban can be lifted include document control and traceability, and markers for category one and two material.

Paul Stenzel, past president, Australian Renderers Association, said a labor shortage is affecting the meat and rendering industries down under due to a mining boom where workers can make a substantial income. Currently, renderers are importing foreign workers. Escalating energy costs and a weakened Australian dollar are also having an effect on the bottom line, despite tallow prices near $900 a metric ton (the average is $600 for Australian product) and meat and bone meal prices above $600 a metric ton (average is $400).

Only a small part of Australia’s biodiesel industry is currently operating. Stenzel said the problem going forward is investor confidence: some publically listed companies are now trading at less than one percent of their peak share value. There is also no support from big oil companies and no government incentives.

German Davalos, NRA director for Latin America, reported that shrimp aquaculture in the region is growing at a rate of 21 percent per year, providing potential for rendered products in feed formulations. A research project on aquaculture is being jointly sponsored by NRA, the Fats and Proteins Research Association, the Colombian Shrimp Producers Association, and a Colombian feed company. NRA will have representation at the World Aquaculture 2009 convention in May 2009 in Veracruz, Mexico.

“It is important to have a presence at these events to distill any misconceptions about rendered products,” Davalos stated.

Ross reappeared with information on two main areas of interest in Europe: the potential for tallow and yellow grease as biofuel feedstocks in the EU, and the use of processed animal proteins in EU feed. He said the drivers for change in this region are animal feed shortages and high costs, a big demand for an intensive livestock sector, and the lack of alternative technologies to increase feed production. He reiterated Nielsen’s comment about the European Parliament stirring, but that there is still resistance to relaxing the EU feed ban. Ross said a review of Regulation No. 1774/2002, Europe’s animal by-products regulation, should be complete by spring 2009; if it’s not, there will be a two-year wait for any changes to existing feed regulations.

Kent Swisher, vice president, NRA International Programs, wrapped up the convention’s international forum by discussing export markets. He informed attendees that Mexico is the largest importer of tallow in the world, and that Indonesia is a growing market for all renderers globally. Swisher also compared the increasing amount of animal proteins exported from the EU-27 countries: in 2002, exports were at 23,000 metric tons; in 2007, that number grew ten-fold to 230,000 metric tons.

NRA’s next annual convention is October 19-23, 2009, in San Francisco, CA.